Q4 2013 Signature Bank Earnings Conference Call
Jan 21, 2014 AM EST
SBNY - Signature Bank
Q4 2013 Signature Bank Earnings Conference Call
Jan 21, 2014 / 03:00PM GMT
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Corporate Participants
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* Joseph DePaolo
Signature Bank - President & CEO
* Susan Lewis
Signature Bank - Media Contact
* Eric Howell
Signature Bank - EVP Corporate & Business Development
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Conference Call Participants
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* Bob Ramsey
FBR & Co. - Analyst
* Chris McGratty
Keefe, Bruyette & Woods - Analyst
* John Pancari
Evercore Partners - Analyst
* Steven Alexopoulos
JPMorgan Chase & Co. - Analyst
* Ken Zerbe
Morgan Stanley - Analyst
* Dave Rochester
Deutsche Bank - Analyst
* Erika Najarian
Bank of America Merrill Lynch - Analyst
* Casey Haire
Jefferies & Company - Analyst
* Matthew Clark
Credit Suisse - Analyst
* Herman Chan
Wells Fargo Securities - Analyst
* Lana Chan
BMO Capital Markets - Analyst
* Terry McEvoy
Oppenheimer & Co. - Analyst
* Jason O'Donnell
Merion Capital Group - Analyst
* Peyton Green
Sterne, Agee & Leach, Inc. - Analyst
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Presentation
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Operator [1]
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Welcome to Signature Bank's 2013 fourth quarter and year-end results conference call. Hosting the call today from Signature Bank are Joseph J. DePaolo, President and Chief Executive Officer, and Eric R. Howell, Executive Vice President, Corporate and Business Development.
Today's call is being recorded. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. (Operator Instructions) It is now my pleasure to turn the floor over to Joseph J. DePaolo, President and Chief Executive Officer. You may begin.
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Joseph DePaolo, Signature Bank - President & CEO [2]
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Good morning and thank you for joining us today for the Signature Bank 2013 fourth quarter and year-end results conference call. Before I begin my formal remarks, Susan Lewis will read the forward-looking disclaimer. Please go ahead, Susan.
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Susan Lewis, Signature Bank - Media Contact [3]
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Thank you, Joe. This conference call and oral statements made from time to time by our representatives contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. You should not place undue reliance on those statements because they are subject to numerous risks and uncertainties relating to our operations and business environment, all of which are difficult to predict, and may be beyond our control.
Forward-looking statements include information concerning our future results, interest rates and the interest rate environment, loan and deposit growth, loan performance, operations, new private client team hires, new office openings, and business strategy. As you consider forward-looking statements, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, and assumptions that could cause actual results to differ materially from those in the forward-looking statements.
These factors include those described in our Quarterly and Annual Reports filed with the FDIC, which you should review carefully for further information. You should keep in mind that any forward-looking statements made by Signature Bank speak only as of the date on which they were made. Now, I would like to turn the call back to Joe.
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Joseph DePaolo, Signature Bank - President & CEO [4]
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Thank you, Susan. I will provide some overview into the quarterly results and then Eric Howell, our EVP of Corporate and Business Development, will review the Bank's financial performance in greater detail. Eric and I will address your questions at the end of our remarks.
Signature Bank delivered another exceptional year of record growth and performance, resulting in our sixth consecutive year of record earnings. And, for the fourth quarter, we again achieved record deposit and record loan growth, expanded topline revenues, and maintained stellar credit quality, culminating in our 17th consecutive quarter of record earnings.
Moreover, while achieving these substantial results, we spent this past year letting a stronger foundation for the future success of Signature Bank. I will start by reviewing quarterly earnings.
Net income for the 2013 fourth quarter reached a record $64.3 million, or $1.34 diluted earnings per share, an increase of $14.2 million or 28% compared with $50.1 million or $1.05 diluted earnings per share reported in the same period last year. The considerable improvement in net income is mainly the result of an increase in net interest income, primarily driven by record deposit and record loan growth.
These factors were partially offset by a decrease in loan, prepayment penalty income, and an increase in noninterest expense.
Looking at deposits, deposits increased a record $1 billion or 6% to $17.1 billion this quarter, including core deposit growth of $532 million and average deposit growth of $904 million.
For the year, total deposits grew $2.97 billion. Core deposits grew $2.3 billion and average deposits increased $2.6 billion, all representing record increases. Non-interest-bearing deposits of $5.4 billion represented 32% of total deposits and grew $947 million or 21% for the year.
Total assets reached $22.4 billion, an increase of $4.9 billion or 28%, as a result of our substantial deposits and loan growth and earnings retention. The ongoing strong core deposit growth is attributable to the superior level of service provided by all of our private client banking teams who continue to serve as a single point of contact to their clients.
Now let's take a look at our lending businesses. Loans during 2013 fourth quarter increased a record $1.4 billion or 12%. For the year, loans grew a record $3.75 billion and now represent 60.4% of total assets compared with 56% one year ago. The increase in loans this quarter was primarily driven by growth in commercial real estate, multifamily loans, and specialty finance.
Nonaccrual loans decreased to $31.3 million or 23 basis points of total loans this quarter compared with $40.2 million or 33 basis points in the 2013 third quarter, and $27.2 million or 28 basis points for the 2012 fourth quarter. The allowance for loan losses was 1% of loans versus 1.05% of loans for the 2013 third quarter and 1.1% for the 2012 fourth quarter.
Additionally, the coverage ratio or the ratio of allowance for loan losses to nonaccrual loans reached a high of 431%.
The provision for loan losses for the 2013 fourth quarter was $11 million compared with $11 million for the 2013 third quarter and $10.4 million for the 2012 fourth quarter. Net charge-offs for the 2013 fourth quarter were $2.8 million, or an annualized 9 basis points, compared with $3.1 million or 11 basis points for the 2013 third quarter and $5.9 million or 25 basis points for the 2012 fourth quarter.
Now, turning to the watch list and past due loans, watch list credits decreased $12.8 million this quarter to $130 million, or a very low 0.96% of loans. During the 2013 fourth quarter, we saw an increase of $7.6 million in our 30- to 89-day past due loans to $54.9 million, and a decrease of $7.7 million in our 90-day-plus past due category to $2.4 million.
While we are pleased that our credit metrics are strong again this quarter, we remain mindful of the prevailing uncertainty in the economic and political environment, and continue to conservatively reserve.
Just to review teams for a moment, 2013 was a strong year for us. In addition to hiring 10 private client banking teams, we also added an asset-based lending team to start that initiative for us. Additionally, we expanded the sales force within our specialty finance subsidiary, Signature Financial.
Thus far in 2014, we have already added one private client banking team and our pipeline remains active. And we look forward to opportunities for attracting talented banking professionals through our network.
At this point, I will turn the call over to Eric and he will review the quarter's financial results in greater detail.
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Eric Howell, Signature Bank - EVP Corporate & Business Development [5]
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Thank you, Joe, and good morning, everyone. I will start by reviewing net interest income and margin.
Net interest income for the fourth quarter reached $178.3 million, up $31.2 million or 21% when compared with the 2012 fourth quarter, an increase of 6.5% or $10.9 million from the 2013 third quarter.
Net interest margin was down 21 basis points in the quarter versus the comparable period a year ago and remained flat on a link quarter basis at 3.32%. When prepayment penalty income is excluded from the 2013 third and fourth quarters, core net interest margin for the linked quarter increased 5 basis points to 3.21%. The linked quarter increase in core margin was predominantly due to a slowdown in premium amortization on securities and generally higher yield on recent loan originations and securities purchases.
Additionally, interest income of approximately $500,000 was recognized on a nonaccrual loan that fully paid off. This added one basis point to the margin.
Let's look at asset yields and funding costs for a moment. Due to the prolonged low interest rate environment and heightened competitive landscape, interest-earning asset yields declined 31 basis points from a year ago, and they were down 2 basis points from the linked quarter to 3.85%.
The average investment securities portfolio increased $242 million this quarter as a result of the purchases made at the end of the third quarter. Yields from the portfolio increased 15 basis points to 3.25% this quarter, benefiting from higher reinvestment yields and a slowdown in premium amortization. The higher interest rates at quarter end -- with the higher interest rates at quarter end, the duration of the portfolio extended slightly to 4.13 years.
And turning to our loan portfolio, yields on average commercial loans, mortgages, and leases declined 20 basis points to 4.38% compared with the 2013 third quarter. Excluding prepayment penalties for both quarters, yields would have declined 10 basis points, driven by continued pressure from refinance activity.
Now looking at liabilities, money market deposit cost this quarter remained flat at 71 basis points. And overall deposit cost decreased 1 basis point to 50 basis points, mostly due to an increase in average noninterest-bearing deposits of $432 million.
Given the strong loan growth, average borrowings increased $320 million to $2.9 billion, or only 13.3% of our average balance sheet. Given the short-term nature of these incremental borrowings, the average borrowing cost is down 7 basis points from the prior quarter to 0.99%. This helped lead to a decrease of 1 basis point in our overall cost of funds.
On to noninterest income and expense, noninterest income for the 2013 fourth quarter was $6 million, a decrease of $2.9 million when compared with the 2012 fourth quarter. The decrease was driven by a $1.9 million decline in net gains on sales of SBA loans and an increase of $2.1 million in write-downs on other than temporary impairment of securities, predominantly stemming from the interim final Volcker rule.
Noninterest expense for the 2013 fourth quarter was $64.5 million versus $58.1 million for the same period a year ago. The $6.4 million or 11% increase was principally due to the addition of new private client banking teams, the new asset-based lending team, and our continued investment in the growth of Signature Financial.
Even with the significant hiring over the last several years, the Bank's efficiency ratio still improved slightly to 35% for the 2013 fourth quarter compared with 37.2% for the 2012 fourth quarter.
In turning to capital, our capital levels remain strong with a tangible common equity ratio of 8.04%, tier 1 risk-based of 14.07%, total risk-based ratio of 15.1%, and leverage capital ratio of 8.54% as of the 2013 fourth quarter. Our capital ratios were all well in excess of regulatory requirements and augment the relatively low risk profile to the balance sheet. And now I will turn the call back to Joe. Thank you.
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Joseph DePaolo, Signature Bank - President & CEO [6]
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Thanks, Eric. The 2013 fourth quarter capped another exceptional year for Signature Bank, where we grew deposits a record $2.97 billion or 21%, increased loans of record $3.75 billion or 38%. Loans now account for 60% of assets.
Maintained stellar credit quality with nonaccrual loans at only 14 basis points of total assets. Expanded net interest income by $99 million or 18%. Now that's topline revenue growth.
Added 10 private client banking teams, enhanced our capabilities with the addition of an asset-based lending team, sustained a solid capital position even with significant growth in the balance sheet, and delivered a 23% increase in net income to a record $229 million.
In closing, I would like to thank all my fellow colleagues for their efforts and execution leading to our sixth consecutive year of record earnings. Now we are happy to answer any questions you might have. Lori, I will turn it over to you.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Bob Ramsey, FBR.
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Bob Ramsey, FBR & Co. - Analyst [2]
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A question for you about the loan growth. I noticed that the end-of-period loan balances were about $800 million greater than average. Is there any sort of year-end skew upward in end-of-period balances, or is that a good starting point to build on as we head through the first quarter?
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Joseph DePaolo, Signature Bank - President & CEO [3]
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Well, we had two very large purchase transactions, one in the middle of November and one of the beginning of December, that could affect the difference between the year-end and the average balances. They totaled $450 million. They were two large purchase transactions. So that may answer your question, Bob.
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Bob Ramsey, FBR & Co. - Analyst [4]
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Okay. So that sounds like the growth was maybe a little bit back end loaded, but it is a good place to build from here. And then could you talk about -- could you just breakout, maybe, by portfolio what the growth -- where it came from this quarter, the $1.4 billion total? How much was CRE; how much was the specialty finance group, where the buckets are?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [5]
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Yes. Multifamily was $902 million of the growth. Other CRE was $292 million of the growth. And then specialty finance was a little over $200 million of the growth. And then the remainder would be C&I and other categories.
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Bob Ramsey, FBR & Co. - Analyst [6]
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Okay. Great. And then last question and I will hop out. But, as you think about the path forward through 2014, do you think the securities portfolio will stay roughly the same size as it is today or do you expect that it will grow or contract?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [7]
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Well, we certainly don't see it shrinking from the levels that it is today, Bob. Liquidity is such an important factor these days and we like to have an ample amount of securities for pledging purposes, but a lot of that will be predicated upon how strong deposit growth comes in. If we see strong deposit growth as we did in the fourth quarter, and if that deposit growth outstrips loan growth, we could potentially grow the securities portfolio.
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Bob Ramsey, FBR & Co. - Analyst [8]
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Thank you very much, guys. Nice quarter.
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Operator [9]
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Chris McGratty, KBW.
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Chris McGratty, Keefe, Bruyette & Woods - Analyst [10]
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Eric, on the securities reinvestment, can you tell us what you bought for the quarter in terms of yield and how that might have compared to the third quarter?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [11]
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I would say that yields were generally similar in both quarters. We were very selective as to when we entered the marketplace. And we are predominantly buying government agencies, so yields generally are still in the low 3%'s, sometimes approaching the mid-3%'s.
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Chris McGratty, Keefe, Bruyette & Woods - Analyst [12]
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Okay. And can you tell us about pricing on the Signature Financial in the quarter? Thanks.
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Eric Howell, Signature Bank - EVP Corporate & Business Development [13]
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Yes. The growth in Signature Financial, again, was a little over $200 million in the quarter. Yields were generally around 4%.
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Chris McGratty, Keefe, Bruyette & Woods - Analyst [14]
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And then not a lot of movement in the pricing, sequentially, on that portfolio?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [15]
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Not much. I mean, they're tied to the five-year swap so as that -- the five- or three-year swap rate. So as those increase, their yields have been increasing.
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Operator [16]
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John Pancari, Evercore Partners.
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John Pancari, Evercore Partners - Analyst [17]
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Just want to also, on the new loan yield question there, I just want to also get where you are originating multifamily paper as of the fourth quarter, what the new money yield is there and then also on the non-multifamily CRE book.
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Joseph DePaolo, Signature Bank - President & CEO [18]
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On multifamily, we are at about 3 5/8. Right now, that's a five-year fixed on multifamily. During the quarter, it actually bounced of around a bit from 3 7/8 to 3 3/4, back and forth. And it is now in the first quarter at 3 5/8.
And I would say anything other than that would be somewhere between 25 and 50 basis points higher on CRE.
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John Pancari, Evercore Partners - Analyst [19]
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Okay. All right. That's helpful. And then, also, on the expense side, efficiency ratio held an impressively stable this quarter and I wanted to get your thoughts on the outlook there, on the ability to keep that ratio stabilized as you continue to hire and grow the balance sheet as well.
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Eric Howell, Signature Bank - EVP Corporate & Business Development [20]
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We think that we can maintain the level of efficiencies that we are at today and hopefully slightly improve those as we go forward. We continue to leverage the large investment we made in Signature Financial in early 2012, so we continue to gain efficiencies there.
Obviously, we just put the asset-based lending group in and hopefully they will start to close some loans now in the first quarter. That will help us to gain some efficiencies there as well, but it is hard to think that will meaningfully move it down below the 35% range. But we should be able to slightly improve that as we go forward, John.
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Operator [21]
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Steven Alexopoulos, JPMorgan.
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Steven Alexopoulos, JPMorgan Chase & Co. - Analyst [22]
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Before I actually ask my questions, I didn't understand your response to the first question. You said there was $450 million of loan growth from two transactions. Are you saying that you purchased loans for $450 million? I can't imagine you booked two loans at $450 million on the balance sheet.
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Joseph DePaolo, Signature Bank - President & CEO [23]
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No. There were two -- when I say purchased transactions, I mean that they were real estate that was purchased. And we financed the purchase of those two major transactions. I will give you some of the detail.
One transaction was $209 million. It composed of 86 buildings and we did 49 loans, purchasing the 86 buildings for a total of $209 million. The other transaction was $241 million, where there were 36 buildings where we financed 29 loans to help our client purchase the 36 buildings. So there were two large transactions totaling $450 million.
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Steven Alexopoulos, JPMorgan Chase & Co. - Analyst [24]
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Okay. That is very helpful. Thanks, Joe. If we look at the $3.75 billion of loan growth for the whole year, how much of that came from newer teams hired over the past two years, which would include specialty finance, and how much came from the legacy teams?
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Joseph DePaolo, Signature Bank - President & CEO [25]
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I would say a substantial portion came from the legacy teams, primarily in the commercial real estate arena. Now, (multiple speakers) Signature Financial, which is the newer business, we had growth of about $800 million. So that would be the newer.
So you are closing in probably somewhere around, with the newer teams, let's say, about $1 billion or so of the $3.75 billion. And I would say $2.75 billion, if I had to give a number, would be the legacy.
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Steven Alexopoulos, JPMorgan Chase & Co. - Analyst [26]
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Okay. That's helpful. And on the prepayment penalty fees, I know they are volatile. But given the pretty sharp decline in the quarter, are you seeing a notable reduction in prepayment activity here?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [27]
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I would say we have seen a slight reduction in that. We are hoping for that to continue as we look out several quarters, Steve.
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Steven Alexopoulos, JPMorgan Chase & Co. - Analyst [28]
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Okay. And Eric, just one final on -- can you help us think about the effective tax rate for 2014? Thanks.
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Eric Howell, Signature Bank - EVP Corporate & Business Development [29]
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Yes. There is typically noise in that tax rate in the fourth quarter as we true up our numbers. So I would go back to using a 42% rate for 2014.
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Steven Alexopoulos, JPMorgan Chase & Co. - Analyst [30]
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Thanks for all the color.
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Operator [31]
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Ken Zerbe, Morgan Stanley.
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Ken Zerbe, Morgan Stanley - Analyst [32]
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Looking at capital and your TCE ratio, you guys have been targeting about an 8% TCE. It looks like you are right there at this point. Can you just talk about how much flexibility you have? What are some potential options that you guys would consider to improve TEC (sic), or could you take it lower than where it is? Thanks.
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Joseph DePaolo, Signature Bank - President & CEO [33]
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Thanks, Ken. The way I would look at it, it would probably be better if you looked at the leverage ratio. The leverage ratio is 8.54%. And, in terms of capital raising, first let me say we don't anticipate the growth that we had of the third and fourth quarters, be in the near term future. They were both well beyond the robust growth.
We expect our typical robust growth. And with $60 million-plus in quarterly earnings, we can support $750 million to $800 million in growth, a level at which we would not be displeased.
Now, having said that, if you look at back in June of 2008, our leverage ratio was 90 basis points less than where it is today. It was 7.64%. That is when we had $400 million in equity, $6.4 billion in total assets, where, today, we are $1.8 billion in equity.
So it is $1.4 billion more in equity. With $16 billion larger, we came to a cycle so we feel pretty comfortable with the levels of capital, both on a leverage ratio and tangible common equity.
So in terms of raising capital, if you look at what we expect or what we would not be displeased at, at $700 million, our earnings of $60 million-plus would actually be accretive to the capital. So we will be at a look and see. We will see where our levels of growth are expected to come in at each of the quarters, and if we continue to have beyond robust quarters, then we certainly wouldn't be shy about considering a capital raise.
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Operator [34]
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Dave Rochester, Deutsche Bank.
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Dave Rochester, Deutsche Bank - Analyst [35]
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Nice quarter. On the margin, you mentioned the drop in securities premium and expense this quarter. I was just wondering if you could talk about where you see margin trending next quarter and how much of a reduction in premium expense you are baking in at this point.
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Eric Howell, Signature Bank - EVP Corporate & Business Development [36]
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Well, I mean, we really see NIM as being stable from this point. We would like to think we reached the bottom in the third quarter, but it is really largely going to be predicated upon the level of CRE refinance activity that we see. And it is very hard to predict that behavior.
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Dave Rochester, Deutsche Bank - Analyst [37]
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Got you. And switching gears to the loan growth side, you guys had some good growth this quarter, and that was without a meaningful contribution from ABL. I was just wondering if you could remind us how you're thinking about the ABL opportunity for this year. It seems like they have got a pretty solid opportunity given their cross-selling to almost 90 teams and it is a brand-new product. Any way you could put parameters on that?
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Joseph DePaolo, Signature Bank - President & CEO [38]
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It's too early. You are right. There seems to be more of an opportunity here than where the ABL group -- that we are very happy to have on board -- where they came from, because we have the 90 teams.
So it's really a combination of potential business the 90 teams can bring, plus their contacts throughout the ABL industry that they have had for the multiple decades that they have been around. So it's really hard to pinpoint. But, certainly, on a quarterly basis, as the questions come up, we will be able to give you some more detail.
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Dave Rochester, Deutsche Bank - Analyst [39]
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And, despite be too early to ask, just given that you are still ramping up ABL, but do you guys see any other product opportunities that might make sense for you?
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Joseph DePaolo, Signature Bank - President & CEO [40]
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There may be some opportunity in the Signature Financial world because we are looking at lines of businesses that we are not in today. I won't get into specifics, number one.
And, number two, also geographically there is still some opportunity. Even though we are doing business in all 50 states, we are not necessarily where we want to be from a sales executive perspective, so we may add on throughout the year there is well. And that is not product; that is more geography.
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Dave Rochester, Deutsche Bank - Analyst [41]
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Got you. Thanks. And just one last one on the expense side. Outside of a large team hire, are you thinking that expense growth for 2014 should range in that 10% to 15% as it has previously?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [42]
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You know, we are not going to give out guidance this year because we have found that in the past it hasn't always been that helpful, Dave, so we will let you guys tackle that one. But we are going to keep you apprised as to how many teams we hire, how many locations we open, and given those, you should be able to project where you expect our growth to be.
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Dave Rochester, Deutsche Bank - Analyst [43]
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Great. Thanks. And one last one on that other expense line. Is that a good run rate going forward? It looked like it jumped up a little bit -- just a small item there.
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Eric Howell, Signature Bank - EVP Corporate & Business Development [44]
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Yes. And I think that is a good run rate for you to use going forward.
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Operator [45]
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Erika Najarian, Bank of America.
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Erika Najarian, Bank of America Merrill Lynch - Analyst [46]
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Most of my questions have been asked and answered, but I just had one follow-up question to Ken's line of questioning on capital. And I am only asking this because you already seem to outperform even robust estimates for loan growth.
When I look back to when you last raised capital, your tier 1 leverage ratio was about 8.15%. Is sort of an 8% floor on tier 1 leverage a potential similar floor to think about, similar to TCE?
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Joseph DePaolo, Signature Bank - President & CEO [47]
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TCE is certainly one of the things we consider, but we have actually raised capital -- I know you are looking at the last time we raised, but there were times before that we raised capital where TCE was actually about 6.69%, when leverage was 7.64%.
So we went that low when we were a bank that was only $6.4 billion with $400 million in capital. And now we are a bank that is far greater in size and more robust and has been through the down cycle. With all of that, we are comfortable with the levels that we are at and that we could go down to mid-7%s on the leverage ratio.
But one of the things that -- an intangible that we consider is that we use our balance sheet and our capital to attract quality clients, since we don't advertise, number one. And, number two, since we are competing against the too-big-to-fail mega-institutions, we always talk about the cleanliness of our balance sheet and the strength of our capital.
So, if we believe that such would be necessary to continue to raise quality clients and bring them in, then we wouldn't be shy about it. So there are so many factors other than just the numbers to look into, Erica, when we are considering -- let's just say we wouldn't be shy.
But, on the same token, first quarter growth is usually the slowest. In our last five out of six years, the first quarter was the slowest of loan growth. And if that continues, that trend, earnings would probably be accretive to capital in the first quarter.
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Operator [48]
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Casey Haire, Jefferies.
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Casey Haire, Jefferies & Company - Analyst [49]
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So I know it is early, but I just wanted to hear your thoughts on what impacts you are seeing on multifamily borrowers given a more tenant-friendly local government policy. And, as a follow-up to that, given a tougher environment here in New York, is this the year that you guys kind of take it on the road to New Jersey and Connecticut?
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Joseph DePaolo, Signature Bank - President & CEO [50]
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Well, regarding the governmental and mayoral situation, we are certainly following it closely. One could be the increase in real estate taxes and the other thing could be the rent freeze that may or may not occur.
But one of the things we point out is that our average multifamily LTV is 58%. And our clients are usually the better operators who have multiple properties and have been doing it for many years, that they can handle usually whatever situations are presented, including any sort of counterproductive things that the government may do in the city. So we will certainly stay on top of it, but right now we are not sure if there will be -- or what the impact may be.
Regarding taking it on the road, so to speak, we are doing business in New Jersey and Connecticut. It doesn't necessarily mean that we would be opening up offices there. But let's just say if I had to predict, we are closer to doing that than we were several years ago.
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Casey Haire, Jefferies & Company - Analyst [51]
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Okay. Great. And then, on the borrowing side, that ticked up again this quarter. Is there an absolute limit where you would not want to go -- see that concentration go at versus 15% today?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [52]
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I think we are so far away from the absolute limit, Casey, that we haven't given giving too much thought to that. At the 15% level we are very comfortable with our level of borrowings.
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Casey Haire, Jefferies & Company - Analyst [53]
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Got you. Okay. And just last question. Do you have the loan-loss reserve ratio on originations for the quarter?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [54]
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No. I don't have it on originations, no. But it is safe to say it was clearly lower because it brought down our overall allowance from 1.05% to 1%. And most of our originations were in the multifamily space, where typically we are going to provide around 70 basis points on those originations.
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Operator [55]
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Matthew Clark, Credit Suisse.
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Matthew Clark, Credit Suisse - Analyst [56]
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On the two larger deals this quarter, can you give us some color around pricing and terms there? And then, as a follow on, talk to what is it about these two situations that may or may not be unique. And should we maybe assume that you are getting more looks at these types of larger transactions? That would be helpful. Thank you.
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Joseph DePaolo, Signature Bank - President & CEO [57]
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Yes. I believe that the commercial real estate banking team in Melville did a terrific job, and was selected to do these two transactions because the buyers and sellers felt comfortable that they could be executed quickly because it involved, like I said -- I'll give you the details.
We had one transaction. There were 36 buildings, 29 loans, debt service coverage above 1.5%, loan to value about 70%, and it was a seven-year deal at 4.25%. And the other transaction was 49 loans with 86 buildings, debt service above 1.7%, LTV about 67%, five-year at 3.75%.
So it bodes well that it involves multiple buildings, multiple loans, multiple appraisers, multiple attorneys, multiple environmental companies. So that made it complicated. There was a time that they needed to get these transactions done quickly.
And because of getting these transactions done and executed well, it is allowing us to see -- allowing our team in Melville to see other transactions this quarter that may or may not close, or we may or may not get. So, yes, you are -- very intuitive thought that you have.
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Matthew Clark, Credit Suisse - Analyst [58]
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Okay. Sounds good. And, were those both existing clients or was one of them a competitive win?
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Joseph DePaolo, Signature Bank - President & CEO [59]
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I think it was a combination thereof, because there were multiple partners. Let's put it this way, they were known to us, but I am not sure it that they were both fully onboard clients at the time.
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Matthew Clark, Credit Suisse - Analyst [60]
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Okay. And then just a housekeeping item on premium am. I guess, how much was that down relative to last quarter? I think it was $19.6 million last quarter.
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Eric Howell, Signature Bank - EVP Corporate & Business Development [61]
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Right. It was down $2.25 million.
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Operator [62]
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Herman Chan, Wells Fargo Securities.
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Herman Chan, Wells Fargo Securities - Analyst [63]
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Back to specialty finance, it didn't look like the Bank saw a seasonal lift in that in the quarter. As we look ahead, can you talk about expectations for growth there? Should we expect higher growth than the $200 million mark as you expand those operations?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [64]
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I think we would be very pleased if we were to continue to see around that $200 million in growth. Remember, the loans are very short duration and have a lot of principal repayment coming back at us because they are three- and five-year self-amortizing loans and leases. So they are really starting to swim upstream against the principal repayments that come back at them. So we would be very pleased if they were to maintain this level of growth, looking forward.
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Herman Chan, Wells Fargo Securities - Analyst [65]
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Got it. And then, switching gears on the deposit side. Eric, I know you have noted that the competition for deposits was somewhat more intense when the 10-year was around the 3% mark. As we are back in the 3% vicinity today, are you seeing that competition return at all?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [66]
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We think it is still pretty heated. Remember, for our type of client, they are really wanted by the other institutions. We don't have that retail component to our business where we were able to effectively slash rates and still maintain the retail deposit.
So if you are a client with a couple million in PDA and several more million in money market funds and lines of credit, and loans outstanding, you are wanted by the mega-institutions. And we are having to fight that competition.
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Operator [67]
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Lana Chan, BMO Capital Markets.
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Lana Chan, BMO Capital Markets - Analyst [68]
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Just wondered if you are giving any guidance in terms of how much -- how many teams you are expecting to hire this year.
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Joseph DePaolo, Signature Bank - President & CEO [69]
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Well, we have always given you our budgeted numbers and we have always executed far greater. So let's just stay say, as we hire them, we will announce them. But the pipeline is relatively active and, although we have hired one team thus far, don't be surprised if we have several more either right before the end or at the beginning of the second quarter.
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Lana Chan, BMO Capital Markets - Analyst [70]
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Okay. Great. Thank you. And then, just to follow up on the premium amortization, is there any way to gauge what a normalized level of premium am is? I mean, if I look back over the last couple of years, I think it has been as low as in the midteens. Is there a way to gauge where -- without any accelerated premium amortization, where it should be?
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Eric Howell, Signature Bank - EVP Corporate & Business Development [71]
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It really all depends on where rates are, Lana.
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Operator [72]
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Terry McEvoy, Oppenheimer.
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Terry McEvoy, Oppenheimer & Co. - Analyst [73]
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At about $13 billion of loans today, how much of the portfolio is to borrowers outside of greater New York? And, internally, how do you think about geographic diversity and concentration risk? And I say that after you have just booked two relatively large loans in the fourth quarter.
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Joseph DePaolo, Signature Bank - President & CEO [74]
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Well, Signature Financial is at about $1.6 billion and maybe half of that is outside the New York area. On the commercial real estate side and the C&I side, all that business is in the greater -- maybe 99.9% of it is in the greater New York area.
We are very pleased and comfortable with the market that we are in. Although there is -- on a geographical dispersion, there is a dispersion among the boroughs and New Jersey and Connecticut and Westchester and Nassau, Suffolk County, so we like that dispersion. Even in the down cycle, we are comfortable.
And we will probably, as we grow, from an absolute dollar perspective with Signature Financial, we will be doing more business outside the New York area. But, predominantly, when you take our banking business, including commercial real estate and C&I, it is going to be predominantly the New York metropolitan area.
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Terry McEvoy, Oppenheimer & Co. - Analyst [75]
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And then, just as a follow-up, could the economics behind new team hires change at all in 2013 or here in the first quarter in terms of reflecting the competitive environment for lenders and teams? And is there a risk at all going forward that, while we see the loan growth and the balance sheet growth, that it would not all fall to the bottom line like we have seen in the past because of either a comp structure or stock options, et cetera, that would be a little bit more dilutive going forward?
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Joseph DePaolo, Signature Bank - President & CEO [76]
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No. We have not seen, although there are some competitive situations out there, because there are more banks vying for bankers, we have not seen it.
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Operator [77]
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Jason O'Donnell, Merion Capital.
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Jason O'Donnell, Merion Capital Group - Analyst [78]
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Just given the loan production that you all achieved, how would you characterize demand at this point, say, versus let's say 12 months ago? And are you beginning to see any improvement in commercial line utilization?
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Joseph DePaolo, Signature Bank - President & CEO [79]
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On the CRE side, I actually felt there was more demand a year ago than there was today. But the numbers don't bear that out. I think it's because there were more transactions -- purchase transactions -- purchase and sale transactions than we were able to participate in.
But I thought there was more refinancing and more demand a year ago. And maybe that had to do with tax rates and the uncertainty in the political environment, that some owners stepped forward to sell because they were concerned about tax rates going up. So that is my feeling, anyway, at least on the CRE side.
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Eric Howell, Signature Bank - EVP Corporate & Business Development [80]
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Utilization remained in the low 40% range, so it is still pretty low, Jason.
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Jason O'Donnell, Merion Capital Group - Analyst [81]
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Okay. Well, in terms of the -- just switching gears, the reserves to loans ratio, I know you get a question of this nature just about every quarter. But at what level do you see that ratio bottoming, assuming no major changes in the loan mix going forward?
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Joseph DePaolo, Signature Bank - President & CEO [82]
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It is hard to say, because for US GAAP, you really have to do your calculations, take your intangibles and not have a bright line or a line in the sand. We are still continuing to provide far greater than what we are charging off.
I think what is bringing it down is the fact that we are doing quite a few multifamily loans where our competitors are providing at a 50 basis points, and we are providing in the 70 basis point range. So that can continue to drive down our allowance as it relates to total loans.
I don't think there is a bright line, though. If we were doing more C&I than -- or other type of loans, then that would support a higher allowance to total loans. But we are doing quite a bit in the multifamily area.
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Operator [83]
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Peyton Green, Sterne, Agee.
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Peyton Green, Sterne, Agee & Leach, Inc. - Analyst [84]
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Just maybe if you could comment, it has certainly been a great four or five years since the recession. And just wondering, maybe today, versus maybe a year ago, what you are more optimistic about than you would have been and maybe what has crept in as a worry over the next year or two compared to maybe six months or a year ago?
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Joseph DePaolo, Signature Bank - President & CEO [85]
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Well, I don't know if you have ever had me be optimistic. I will say this. One of the things that did not exist six months ago that exists today, that affects us because we are a New York-based commercial institution, is the fact that we have an new administration in City Hall, which I know only affects New York City and the metropolitan area. But that unknown certainly has us watching very closely to see how that is going to affect businesses. And businesses that are affected are our clients.
So that is something that is clearly different than it was six months ago, so to speak, or even a year ago. That would be the major item.
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Peyton Green, Sterne, Agee & Leach, Inc. - Analyst [86]
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Okay. But anything that would make you more optimistic or --?
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Joseph DePaolo, Signature Bank - President & CEO [87]
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No. My job is not to be optimistic.
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Peyton Green, Sterne, Agee & Leach, Inc. - Analyst [88]
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Fair enough. Thank you for taking the question.
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Joseph DePaolo, Signature Bank - President & CEO [89]
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Healthy paranoia is what we need to do, to run our institution.
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Operator [90]
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There appear to be no further questions. This does conclude today's teleconference. If you would like to listen to a replay of today's conference, please dial 800-585-8367 and refer to conference ID number 31082319. A webcast archive of this call can also be found at www.signatureny.com. Please disconnect your lines at this time and have a wonderful day.
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